These 3 Assumptions Can Harm Your Credit Score
As soon as you got to know that your credit score will have a make or break impact on banks deciding for or against giving you a home loan, you started working towards improving it. In your hurry to do so, you might taken steps that might not be good for your credit score. Your assumptions about the world of finances may also adversely impact your chances of impressing lenders.
How good is good?
Latika Pandey did some shopping using her credit card. Later, she had a disagreement with the credit card company over existing dues. The matter kept pending for four years. However, Pandey decided to settle the loan before co-applying for a home loan with her husband.
She did the right thing, or did she not? The answer is no.
You are aware that paying off small loans before applying for a big one is a reflection of financial discipline. However, do not be mistaken in differentiating a paid-off loan from a settled loan. A paid-off loan means you repaid borrowed capital according to all the terms and conditions while a settled loan indicates towards repaying a disputed loan. Your credit reports will clearly reflect the difference, based on which banks will judge your financial behaviour.
Is it good if you have no credit history?
Monalisa Sen never applied for a loan in her life. She was of the view that one's dependence on credit does not send positive signals. She thought this would impress financial institutions.
It is wrong to assume that banks would be impressed with you if you never took a loan in your entire life. In fact, this gives them a reason to worry. Financial institutions would like to see a credit report which shows them how an individual has been managing various credit portfolios at the same time. This would give them more confidence in you. A naïve borrower is always a risky bet as far as banks are concerned.
Is rushing the right way out?
It was only after he selected a property to buy when Alok Mishra realised the importance of a good credit score. To work things in his favours, Mishra quickly paid off all his loans before applying for a home loan.
While this is a good move, things could have worked better if Mishra paid off his existing loans at an earlier stage. Your credit reports can take as many as 60 days to get updated. So even if you have paid off your loans, it will not instantly reflect in your credit report. This would mean you having to wait for about two months before you apply for a home loan.